Startup and Enterprise technology teams cite a myriad of reasons for epic failure rates. Obviously, you want to avoid those failure rates. Know that the popular blueprint for product development, centered around Product-Market Fit (PMF) as an inflection point, is misguiding. That said, this article introduces a new conceptual framework that is far more detailed, showing you the benchmarks you need to hit to be successful.
It was 2012 when I was in Haiti standing in the hills looking around at ill-built cinderblock homes and dilapidated huts they used for schools. Distraught, I walked to the end of this one path to find a wooden platform with 5 outhouses. It was falling apart and there were feces and garbage trickling down the hill.
A huge banner across the structure read, “Sponsored by USAID.”
When we talk about 90% project failure rate in the startup tech world we have to also understand that over 50% of IT projects fail across companies of all sizes, the Bill & Melinda Gates Foundation often accepts up to 100% failure rate, and the US government continues to fund USAID, though their projects, too, have roughly a 90% failure rate.
Are people really that bad at solving problems? Have we become that complacent with mediocrity?
After all, every reason startups fail can be traced back to the same crack in the foundation: Not knowing something crucial about your customer. We get so excited by our own ideas that we jump past doing deep customer discovery and validation. We miss important details that leave us guessing and struggling down the road.
Are you with me?
If “market” is synonymous for the customer and the industry keeps failing because we ignore our customers, then there’s something fundamentally wrong with the popular definitions of Product-Market Fit (PMF).
PMF cannot be an inflection point. It’s not something you can wait to do later. The often repeated guidance to entrepreneurs is to (1) identify a problem, (2) stub out a solution, (3) develop a minimal viable product, and (4) look for product-market fit.
This approach to PMF causes a lot of problems: entrepreneurs spend a lot of money developing a product based on their vision with loose input from outside sources then search in earnest for a customer to pay for it.
Believe me, you do not want to launch products and then try to find customers. That leaves way too many assumptions unproven. The #1 reason startups say they fail is because they launch to no market need.
Why is there no market?
Because other entrepreneurs built products without much consideration for an exact customer segment they could serve. Product-Market Fit as a single inflection point leads to launching to no market need.
So let us replace PMF with “fits” that can be achieved at every stage of startup development and, importantly, from the very beginning of an idea’s inception.
Innovation Cycle Framework: A Replacement for Product-Market Fit
Below I present to you 7 new benchmarks in the evolution from an entrepreneur’s original spark thru scaling.
Every startup business is broken into three main stages:
Within these three main stages, I detail benchmarks to replace broader and more ubiquitous definitions for Product-Market Fit.
Finding a Problem that Secures Your Footing
Founder / Problem Fit
The #3 reason startups say they fail is that they didn’t have the right team. “Not the Right Team” just means the founders or the people they hired were not willing to do anything to solve the customers’ problems.
From the very beginning, you need to push yourself to stick with the problem you want to solve. In forcing yourself to explore the problem from other peoples’ perspectives, looking for something truly significant to solve, you’ll also struggle. That struggle will test whether you have Founder/Problem Fit.
Some of the things you’ll look for:
- How am I or how is my team uniquely suited to solve this problem?
- Team background and history in this space
- Evidence of grit and commitment
- Rolodex in the industry, advisors willing to make important connections
Right team, right time, right skills, passion, commitment, connections. Check them all.
You do not want to jump to a solution if you cannot convey a clear, compelling problem statement. If you don’t have it you haven’t done the requisite work to ensure there’s a problem or opportunity worth solving.
You also can not move forward if you’re target audience is “some version of everybody”. Before embarking on a prototype, you must connect with a very, very specific early segment.
- Is this a problem worth solving?
- Is it a vitamin or painkiller?
- Are there customers willing to commit up front, either money or time, at a chance to solve this problem?
Notice that getting Founder/Problem & Problem/Value fit does not yet include details of the solution. You need a problem where people get really, really excited just at the thought that you could make it go away.
Not having these two fits is how the typical startup journey fails from the get-go — we experience a problem, jump to a solution and validate our solution idea, selectively listening to only the feedback we want to hear. Then, we think we have a business!
A problem can only be a business if you’re obsessed with it and there are early customers that will pay you to solve it.
You need a problem where people get really, really excited just at the thought that you could make it go away.
Developing a Solution Customers Will Use
The new stages when you’re solution finding reflect multiple iterations of both product and marketing. It’s not so simple to go from building a minimal viable product to finding product-market fit. You should not have to burn holes in your pockets, investing a lot up front to figure out if your solution is on target.
From Problem/Value Fit, you know that there is value in solving this problem. You have people that are excited at the very idea that you could solve this problem. Now you need to sketch a solution and answer the question, “Will customers pay me to solve this problem this way?”
Notice that I didn’t say “build” a solution. This is a prototype. You can sketch it out, mimic it manually and use existing technologies. If you have to pay someone to develop the first version, you’re doing it wrong.
Okay, you have an approach to solving the problem that is engaging to your very early customers and testers. Now, let’s add a little more. Identify which parts of your approach you can automate using existing technologies and which parts may require an investment in software development.
Be modest in selecting the features to invest in developing. Gather early customers from prototype testing and recruit some more from your niche audience. Put together a pilot to see:
- Is the language I’m using to recruit existing and new customers to pilot my product compelling?
- Am I able to locate and engage new customers through basic, low/no cost marketing?
- Can customers derive value with less of me involved?
- What are these pilot customers willing to pay for?
- What other features do they need before they pay more for this product/service?
At this stage, you most likely are still onboarding most new customers with some amount of manual work. You’ll take phone calls to help them set up an account. You’ll invite people individually through Facebook messenger. Each of these interactions is an opportunity for you to practice your messaging and learn what your customers value.
Now that you’re well into building out your solution, iterating on customers’ feedback, adding new features as you validate their value, you’re slowly removing yourself from the process of new user onboarding and general user engagement.
You’ll achieve Pilot/Product fit when you can start to measure your key metrics for your customers. The most important key metric is “Are people using your product?”
- Can new customers sign up, create an account and start using the product without direct support?
- Is your product encouraging certain behaviors and meeting initial key metrics?
- Are customers paying for your product?
- Can we start to model financial projections around growth without substantial guessing?
As you move through Value/Prototype, Prototype/Pilot and Pilot/Product, you’re doing mini-launches to small groups of customers. The features are bare bones at the beginning. You’re involving customers in the design of your product. You should be charging for the value you’re delivering even though the product isn’t fully grown.
In each stage you’re doing the following:
- Increasing the feature set
- Increasing the size of the audience
- Learning & Iterating on both Product & Marketing
- Setting up a basic marketing structure
- Removing manual assistance from the team
- Increasing the ability of customers to self-service
- Involve actual customers in every step of product design and development to keep your business value & customer needs aligned.
Growing & Scaling Your Business
If you met all the previous fits, growing & scaling should be straightforward. But I know that a lot of entrepreneurs will gloss over product development because they truly believe, “If I build it, they will come.”
We want to believe that if we build something so amazing — and of course what we’re building is so amazing — people will naturally love it. All of the major media outlets will write about us and every user will be an evangelist. And, even if not, we have the grit to execute. “This will be no big deal,” were their famous last words.
The whole idea that Product-Market Fit could be an inflection point sets people up to build first then market later. You do not want to forego putting early versions of your product in front of customers. You will certainly miss important details.
Do not be scared to put the unrefined versions of your product out there. If you’re scared for the negative feedback and you build a full product, you’re making a mistake. Remember.
No product is fully built if there are no customers actively using it.
Now, in the previous stages, you should have been doing releases with mini versions of your product. When I’m talking about Launch* at this phase, I’m talking about launching BIG.
When you went from Pilot to Product, you refined the features and your business offering until you had evidence behind your key metrics; the most important being “Do people use your product?”
If people are deriving value from your product without much of your involvement, then you should start to see more referrals and organic signups. Other evidence that you have Product/Launch fit:
- Narrowed your distribution channels to one or two
- Confident your marketing language resonates
- Have evidence that your marketing tactics are working
- Growth is happening
For the final fit, ask yourself: Is this product ready for significant marketing and sales investment? Another way to put it is, am I confident enough in all of my value propositions that if someone sponsored a $1 million Super Bowl Ad, I know we’d knock it out of the ballpark?
At this point of your business, you are ruthlessly focused on the distribution channel that will take you from 10K users to 100K users. You have a repeatable process for acquiring customers. You may be testing new ads but you have ads that are working.
Some other evidence includes:
- Decreasing Customer Acquisition Cost (CAC)
- Solid relationships with strategic partners and thought leaders
- Expanded features for an expanded market
Growth & Scale are difficult and time intensive. If you did everything else correctly, these last two stages should be more straightforward
In other words: If you feel like you’re at growth and scale but are struggling and burning through cash, you need to back up. Go through my previous fits to be sure you’ve uncovered everything to know about your customer.
Product Roadmap Primer
Spend Your Development Resources Wisely
Gain vital product management skills with this 30+ page workbook where I outline exactly how to go from “lots of feedback, new features, and bugs” to “a clear plan”. If your mind is abuzz with a million different ideas for your product, this guide will help unclutter your path forward.Check Out this PDF